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Thursday, September 09, 2021 10:56:42 AM
The 4.55% capital requirement is mainly CET1 which sits on the balance sheet as capital and is unavailable for mortgage loans.
Higher capital requirements increase the cost to the gses of providing their mortgage guaranty and the more capital needed to be set aside for each loan results in lower returns for the gses and hence they need to charge MORE to make their targeted rate of return.
Banks can keep mortgage loans on their own balance sheet as an asset and assume the credit and interest rate risk and sometimes they do and avoid the gses all together.
MC set the Capital Requirements so high BECAUSE AS A LIBERTARIAN HE FUNDAMENTALLY BELIEVES THAT THE PRIVATE SECTOR SHOULD BE DOING THIS NOT THE GSES, they also tend to like charging user fees for government services, like tolls for roads, or as here, high GFees for government guarantees in MBS.
PLMBS is currently still a very small segment of the MBS market but some financial intermediaries are testing that market again.
Community banks, credit unions, and small financial intermediaries typically send their mortgage loans to the gses so they can free up funds for other type of lending and have fewer options.
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